Chinese mainland chipmaker Semiconductor Manufacturing International Corp (SMIC) has successfully mass-produced a smartphone processor for Huawei Technologies, marking a breakthrough in the mainland’s push to boost its chipmaking industry, experts said. Huawei’s chipset, the Kirin 710A, was produced through an advanced, 14-nanometer manufacturing process by the Shanghai-based chipmaker, marking the first time that a Chinese mainland semiconductor company has used that technology to mass-produce smartphone processors. The process produces more efficient chips. The move also confirms that Huawei is shifting partial production of its self-designed chips to SMIC.

Meanwhile, the U.S. has further restricted the supply of chips incorporating U.S. technology to Huawei. Under new rules, foreign semiconductor makers must obtain a U.S. license to ship Huawei-designed semiconductors to the Chinese company that were produced using U.S. technology. The rule went into effect on May 16, with a 120-day grace period for chips already in production.

Taiwan Semiconductor Manufacturing (TSMC) announced it would no longer accept chip orders from Huawei. Guo Ping, rotating Chairman of Huawei, warned that the U.S. restrictions “will also affect communications services for the more than three billion people who use Huawei products and services worldwide.” To cope with restrictions, Huawei’s research and development spending grew 29.8% to CNY131.7 billion in 2019, while inventories surged 73.4% on a yearly basis, the China Daily reports.

China’s state-backed funds pumped USD2.25 billion into SMIC to raise its registered capital from USD3.5 billion to USD6.5 billion. Meanwhile, U.S. President Donald Trump extended with another year an order signed last May that prohibited U.S. companies from using telecoms equipment made by firms deemed a national security threat – a ban that includes Huawei and ZTE. At the same time, a waiver allows Huawei to still sell certain equipment to U.S. telecom carriers.

Xiang Ligang, Director General of the Information Consumption Alliance, said that the Kirin 710A chip’s design, manufacturing, testing and packaging are now all done by Chinese mainland companies, which is a breakthrough for the industry. The comments came after employees of SMIC Shanghai received Huawei smartphones last week with “Powered by SMIC” printed on the back.

Huawei said earlier that it would expand its production capacity in 14 nm manufacturing to 15,000 wafers per month by the end of 2020. The company said in its first-quarter financial report that its revenue in the three months was USD905 million, up 35% year-on-year and marking a record high. Huawei is also beefing up its own chip research and development capabilities. HiSilicon, Huawei’s semiconductor arm, became the first Chinese mainland company to enter the Top 10 global chip rankings, taking the 10th position in the first quarter of 2020, according to market research company IC Insights, the China Daily reports.

As the U.S. announced it would block shipments of semiconductors to Huawei, China is preparing countermeasures, including putting U.S. companies on an “unreliable entity list,” launching investigations, imposing restrictions on U.S. companies, and suspending purchase of American products, a source close to the Chinese government told the Global Times. The U.S. companies mentioned, including Apple, Qualcomm, Cisco and Boeing, are all highly dependent on the Chinese market. Boston Consulting Group (BCG) warned that if shipments of U.S. chips and chipmaking equipment to China were stopped, and China were to ban imports of U.S. electronics and software, it could cost the affected U.S. companies 37% of their annual sales. BCG found that the top U.S. semiconductor makers have reported a median revenue decline of between 4% and 9% in each of the three quarters following the ban on Huawei buying U.S. chip technologies in May 2019.

Smartphone shipments in China rose by 17.2% in April on a yearly basis, the first such expansion in the past four months. Data from the China Academy of Information and Communications Technology (CAICT) showed that 40.8 million smartphones were shipped from factories to retailers in April, with 32 new models being launched. Shipments of 5G smartphones stood at 16.38 million units, a 164% growth on a monthly basis, and accounted for 39.3% of total shipments, the report said. Strong consumer demand for cutting-edge devices prompted retailers to shore up stocks. With the virus outbreak still rampant in many overseas countries, Chinese smartphone firms like Huawei, Xiaomi, Oppo and Vivo are now focusing more on the domestic market, thereby intensifying competition. In April, 22 new 5G smartphone models were launched in China, according to CAICT.